Sunnycrest Nursing Center located in Dysart pictured on Sunday, July 24. The Iowa Department of Inspections and Appeals recently approved plans to close the facility. PHOTO BY SOREN M. PETERSON

An Iowa nursing home chain that’s mired in bankruptcy proceedings is edging closer to a settlement agreement on millions of dollars owed to the federal government.

QHC Facilities, an Iowa company that filed for bankruptcy late last year, has in recent years operated eight Iowa nursing homes and two assisted living facilities. One of the nursing homes recently closed, and two more including Sunnycrest Nursing Center in Dysart are in the process of shutting down.

Blue Diamond Equities now has a tentative agreement to purchase the chain, but the terms of the deal have yet to be finalized. That’s partly because the chain is shrinking in size with the ongoing facility closures, but also because there is some uncertainty as to payment of the $6 million owed by QHC to state and federal taxpayers.

Court records show the chain owes the federal government’s Centers for Medicare and Medicaid Services $2,108,910 for unpaid fines related to quality-of-care regulatory violations and for COVID-19 Accelerated and Advanced Payments it collected in the midst of the pandemic.

In addition, QHC owes the state of Iowa $3,930,784 in unpaid fees.

Francis Lawall, an attorney for many of the creditors in the bankruptcy case, told U.S. Bankruptcy Judge Anita Shodeen at a hearing Tuesday that negotiations with the CMS on reducing the $2.1 million debt are proceeding.

“There is already a form of settlement agreement that is being circulated with CMS,” Lawall said. “It is by no means finalized but there is a framework for an agreement that is outstanding right now.”

The settlement, Lawall later told the Iowa Capital Dispatch, is intertwined with QHC’s efforts to sell the chain. That’s partly because the debt to CMS has to be satisfied before the chain can be sold to a new owner who will then take over the contracts that allow the chain to bill Medicare for resident care.

“These CMS agreements with the facilities can be taken over by the buyer, but to the extent that there are amounts due to CMS under those agreements, that debt has to be paid before being assigned to the buyer,” he said. “So, CMS is negotiating right now a potential compromise that would help facilitate this transaction.”

According to the Iowa attorney general’s office, it is in negotiations with QHC over the $3.9 million the company owes the state of Iowa.

‘Urgent’ report filed with the court under seal

The five fully operating skilled-nursing facilities owned by QHC are the Crestridge Care Center in Maquoketa; Crestview Acres in Marion; QHC Fort Dodge Villa; QHC Humboldt North; and QHC Winterset North. The two assisted living centers are QHC Madison Square in Winterset and QHC Villa Cottages of Fort Dodge.

QHC Humboldt South recently closed and now sits vacant. Also marked for closure are QHC Mitchellville, which has 15 residents, four of whom are moving out on Wednesday; and Sunnycrest Nursing Center in Dysart, which is home to 10 residents, two of whom are moving out this week.

The court has appointed a patient care ombudsman to look after QHC residents during the bankruptcy proceedings. The ombudsman visited QHC Winterset North in early July and reported to the court that serious regulatory violations had led to fines and the denial of Medicare money for any new admissions at the home.

She also noted that the director of nursing and the home’s provisional administrator were both “out for COVID quarantine” at the time of her visit. The home was relying heavily on temp workers employed by outside agencies, and there were non-clinical positions in the housekeeping and kitchen departments that remain unfilled, she stated.

On Aug. 5, the ombudsman filed with the court what she characterized as “an urgent, supplemental report to quickly update the court on a topic of resident import.” Citing “the sensitivity of the information,” she asked the court’s permission to file that update under seal, and the court agreed – so it’s not known what the report entails.

State debt represents $3.9 million in unpaid fees

QHC’s path to bankruptcy dates back to last year when company owner Jerry Voyna died. His widow, Nancy Voyna, took over the company and began looking for a buyer.

In court filings, she stated that after her husband’s death, it was discovered the company had not been paying a series of quarterly fees owed to the state, leaving an accumulated debt of almost $4 million.

The quarterly fees, called “quality assurance assessment fees,” are to be paid to the state and are designed to increase a facility’s cost of doing business.

The increased expense enables the facilities to draw down more in Medicaid reimbursement from the federal government for resident care, offsetting the cost of the fees they’ve paid to the state.

By law, the care facilities are supposed to use any additional revenue collected through that process to increase the pay of direct care workers and other staffers – which is why the fees are labeled “quality assurance assessment fees.”

It’s a circular, but legal, method of increasing the revenue collected by nursing homes and has been approved by the federal government in Iowa and other states.

Nancy Voyna died in January, leaving the QHC chain to her son, who has continued to pursue a sale of the company and all of its assets.

Judge: ‘We’re kind of starting all over.’

At Tuesday’s court hearing, Judge Shodeen expressed concern that with issues related to debt and the sale price of the chain still unresolved, QHC could quickly become insolvent if the planned sale doesn’t go through.

“This case has been pending a long time and nothing has gone according to plan, and I think everyone here recognizes that,” the judge said. “If these issues aren’t resolved, I am not exactly sure what to do with this case. There has been, now, one buyer who the debtor asked me to replace, and we have another buyer who has come and who now wants to apparently change the (purchase agreement). So, my concern is that we’re kind of starting all over.”

Shodeen acknowledged she didn’t have a full picture of what was transpiring in the case outside the courtroom.

“I don’t know where the state of Iowa is with regard to these issues,” the judge said. With regard to the planned sale, she said she was “left with a large concern as to, what if this doesn’t work?”

Ashley Wieck of the United States Trustee’s Office told Shodeen she understood the concern.

“It’s a concern for us as well,” she said, “And, you know, we’re waiting with bated breath to see if the sale is going to go through.”